Compucat is a Canadian manufacturing company that produces inexpensive personal and laptop computers. The company has been generating progressively more of its sales from foreign markets. During 2019, the company started purchasing most of its components from a supplier in Germany.

To deal with the uncertainty associated with foreign exchange fluctuations, all of Compucat's foreign currency denominated receivables and payables are hedged with contracts with the company's bank. Compucat's year-end is on December 31. The following transactions took place in 2019:

On September 1, 2019, Compucat purchased components from its German supplier for 100,000 Euros. On that date Compucat entered into a forward contract for 100,000 Euros at the 60 day forward rate of 1 Euro = CDN$1.50. The forward contract was designated as a fair value hedge of the amount payable to the German supplier. Compucat settled with the bank and paid its supplier in full on December 1, 2019.

On December 1, 2019 Compucat also shipped a batch of laptop computers to an American client for US$250,000. The invoice required that Compucat receive its payment in full by January 31, 2017. On the date of the sale, the company entered into a forward contract for US$250,000 at the two-month forward rate of US$1 = CDN$1.25. This forward contract was designated to be a fair value hedge of the amount due from the American customer.

The dates and exchange rates relevant to these transactions are shown below:

	Spot rate	Forward rate
September 1, 2019:	1 Euro = CDN$1.4875	1 Euro = CDN$1.5000
December 1, 2019:	1 Euro = CDN$1.4800	1 Euro = CDN$1.4800
	US$1 = CDN$1.2600	US$1 = CDN$1.2500
December 31, 2019:	US$1 = CDN$1.2700	US$1 = CDN$1.2600
January 31, 2017	US$1 = CDN $1.275	US$1 = CDN $1.275

1) Prepare the 2017 Journal Entries if the company invoked fair value hedge accounting

2) What would the balance in the asset and liability accounts as at December 31, 2019?

Answer rating: 100% (QA)

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